The Big Story: After marathon markup, House panel advances tech bills.
Following a multi-day, contentious markup, the House Judiciary Committee advanced several bills aimed at large tech companies despite concerns from companies, industry groups, and lawmakers on both sides of the aisle that the bills will have unintended consequences—including making it harder for startups to get acquired.
The package of six proposals would make several dramatic changes to the way the largest tech companies operate and offer products and services. Among other things, the bills would make it easier to break up large companies, prohibit companies from boosting their own offerings, force companies to build tools making it easier to switch between platforms, and effectively keep large tech companies from acquiring smaller companies. While each of the bills have bipartisan support, both Republicans and Democrats spoke out this week, expressing concerns about the quick consideration, and warning of unintended consequences. In a joint statement following the markup, a bipartisan group of House Judiciary Committee members representing California said, “The package of legislation poses harm to American consumers and the U.S. economy and left Members on both sides of the aisle with basic questions that have yet to be answered.”
One of the potential unintended consequences is constricting a vital exit ramp for startups by eliminating large tech companies as potential acquirers. As we explained last week, acquisitions are an important exit opportunity for many startups, and limiting those opportunities could negatively impact the startup ecosystem. In our State of the Startup Ecosystem report released earlier this year, we found that investment and acquisitions are strongly and positively correlated. That kind of relationship does not exist for investment and IPOs, the other frequently-cited exit opportunity for startups, which can be complex and costly. Additionally, acquisitions are especially important for startup hubs outside of places like Silicon Valley. As lawmakers continue to consider the bill, we hope they’ll recognize the many ways in which the technology ecosystem is interconnected and consider the bills’ potential downstream impacts, including on U.S. startups.
Policy Roundup:
Senate probes patent quality concerns and possible solutions. On Tuesday, the Senate Judiciary’s IP Subcommittee convened a hearing on how the government can protect real innovations by improving the quality of patents issued by the U.S. Patent and Trademark Office. Witnesses at the hearing discussed the value of high-quality patents and explored how low-quality patents hurt businesses in all types of industries—from golf ball and semiconductor manufacturers to small, main street businesses and medical diagnostics companies. As Engine noted in a letter to the Subcommittee, patent quality is also essential to startups, and there are a number of things Congress can do to try to enhance it.
Entrepreneur media speaks out against PRO Act. This week, Entrepreneur stepped into the advocacy world for the first time to speak out against the PRO Act and the detrimental effects it could have on small businesses and franchisees. If enacted, the legislation—which passed the House earlier this year—would codify the ABC test, forcing the reclassification of countless independent contractors as employees. As Engine has stated in the past, in codifying the ABC test and expanding it to U.S. companies of all sizes, “the government would be forcing nascent companies with shoestring budgets to sharply curtail the type of outside contract work they rely on to grow.”
Supreme Court decision preserves patent review with additional political supervision. This week, as its term comes to a close, the Supreme Court issued a decision in the Arthrex case. As we previously explained, that case involved the framework for appointing and removing certain patent office officials—the Administrative Patent Judges (APJs)—which, among other functions, can take a “second look” at weak or overbroad patents and invalidate claims that should not have issued in the first place. A majority of the Court concluded that those judges do not have sufficient supervision from Senate-confirmed officials, and their decisions should be reviewable by the PTO Director.
European court concludes platforms are not automatically liable for users’ copyright infringement. This week, the Court of Justice of the European Union ruled that operators of online platforms are not automatically liable if their users upload content “illegally,” and concluded that platform operators are not the ones communicating with the public when users upload copyright-infringing content. The decision marks a win for online platforms but does not reflect recent changes to EU’s copyright law which, as we have previously noted, will force startup platforms to use expensive and ineffective tools to police user-uploaded content.
Canadian lawmakers pass legislation to regulate social media and streaming. This week, Canadian legislators passed a bill to treat media streaming services and social media like traditional broadcasters. If the bill passes the Canadian Senate, affected companies would be required to “provide information about their revenue sources, give a portion of their profits to a fund to support Canadian content and increase the visibility or ‘discoverability’ of Canadian content.”
Startup Roundup:
#StartupsEverywhere: Newark, New Jersey. Sam Caucci is the founder and CEO of 1Huddle, a Newark-based software company creating mobile games for workforce development, corporate employee training, and upskilling. We sat down with him to discuss how he developed his business, the challenges of navigating complex privacy frameworks, and the need to rethink how technology will impact the future of work.
Startup Policy Seminar Series: Patent Policy & Your Startup. Join Engine on July 20 at 4 p.m. ET where, together with an expert panel, we will explore topics related to patent policy. We will discuss how patents can impact any startup—whether or not it applies for its own patents. And we will highlight how startups can get involved with policymakers, both to ensure balanced, commonsense frameworks continue to govern patent law and to promote improvements in patent quality. The event will feature a panel discussion moderated by Engine’s IP Counsel, Abby Rives. You can RSVP here.
